Chrysler's day of reckoning

One American automaker looks set to get a swift resolution in bankruptcy court. Will General Motors follow suit?

By Andrew Leonard
Published May 27, 2009 3:28PM (EDT)

Today is the big day for Chrysler. After the attempt by the (Republican) Indiana state treasurer to derail the government-backed bankruptcy restructuring failed to win any favor with the bankruptcy judge or a district court judge, all systems are go for a ruling on the plan -- and the consensus appears to be that the bankruptcy judge will give his blessing.

A favorable (for the government) ruling doesn't necessarily mean a permanently done deal. Opponents can, and probably will, appeal the decision. But so far as we can tell now, the White House has been playing a winning hand with Chrysler -- President Obama promised a swift bankruptcy procedure and he seems to be getting one.

But Chrysler is small fry compared to General Motors. Despite speculation here and elsewhere that Obama's smackdown of the Chrysler hedge fund bondholders was intended to send a stern message to G.M.'s bondholders in order to get them to play ball with an out-of-court restructuring, it now appears that the government and G.M. have accepted that bankruptcy is the only workable option. With Chrysler, the government engaged in some give-and-take haggling right up to the government-imposed deadline. But with G.M. the government's stance seems to have been more inflexible. No one expected G.M.'s thousands of bondholders to agree to the government's original offer, and, unsurprisingly, they didn't.

So the question now is: Can G.M. get in and out of bankruptcy court on a reasonable timeline? The usual suspects are skeptical and with good reason: G.M. is a much bigger, more complicated operation than Chrysler. The stakes are far bigger, and the legions of lawyers who will contest every twist and turn far more numerous.

But there's one very good reason why the White House could get its way. And that's because without the government, G.M. would be toast. The feds have already poured in $15 billion and another $50 billion is supposedly on the way -- designed to keep G.M. going through a Chapter 11 bankruptcy restructuring. Without that funding, G.M. goes directly to a Chapter 7 liquidation. I haven't seen any good number crunching comparing what bondholders might stand to get out of a liquidation versus the government's offer of a 10 percent stake in the new company, but that miserable calculus would appear to be the bottom line.

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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